opinion

US-Mexico-Canada Agreement supports markets

The wheat market was showing slight gains to open the week when an announcement regarding the potential curtailing of Russian wheat exports gave the market a good shot in the arm during Oct. 2 trade. The market announcement stated that 30 grain loading points in the Krasnodar and Rostov area could face 90 day suspensions if violations of phytosanitary rules are confirmed.

Krasnodar is close to the port of Novorossiysk in the Black Sea region, while Rostov is northeast of Moscow. The market backed off the following day as reports stated that the facilities will stay open until investigations are completed regarding potential rules violations. International shippers had been complaining about the quality of wheat and a few countries, including Egypt, stated they would be enforcing current international standards.

Both the Global Forecast System and European weather models are agreeing on heavy precipitation of 4-8 inches across 25 percent of the primary winter wheat production areas of Kansas and Oklahoma. There is speculation that these heavy rains could lead to more reseeding and poorer stand development. According to the Oct. 1 weekly crop report, winter wheat plantings are 43 percent complete, and emergence is at 14 percent, which is right at the five-year average.

European weather models are calling for significant snow for the western Canadian provinces of Alberta and Saskatchewan in the next week. Alberta has roughly 45 percent of its spring wheat remaining to be harvested as early snow has slowed harvest. Saskatchewan has roughly 25 percent of its wheat remaining to harvest. There is concern over a potential increase in Canadian feed wheat.

Australia continues to battle a crippling drought. Eastern Australia received 1-2 inches of rainfall over a third of its drought stricken area to provide minor relief. Western Australia experienced more widespread precipitation. The southern tier is favored for rains in the six-to-15-day forecast but it's seen as too late to relieve late-season plant stress.

Regarding the U.S.-Mexico-Canada Agreement and international standards, Sen. John Hoeven, R-N.D., said in a written statement that he worked to ensure the USMCA "eliminates Canada's automatic downgrade of imported U.S. wheat to feed grade and ensures grading standards and services are non-discriminatory."

Corn

The corn market saw good strength on the week from five primary drivers. The first was the USMCA. Second was less-than-expected rainfall in Argentina, and third was a relatively wet forecast for the next few weeks during U.S. harvest.

The fourth was continued robust demand in the weekly export inspections and sales reports. Inspections were above trade expectations at 1.344 million metric tons (52.9 million bushels). Weekly export sales were at the high end of expectations at 1.431 million metric tons (56.3 million bushels). Demand continues to be robust at these low prices.

The fifth driver is an expected announcement regarding E15 usage. President Donald Trump is expected to visit Iowa Oct. 9, and it appears there will be an announcement on lifting the summertime sales restrictions on E15. The second piece of the puzzle will be how they handle the trading of Renewable Identification Numbers or RIN credits. Getting rid of regulations is something Trump likes to do, so treating E15 in the same manner as E10 would be consistent with policies of less regulation.

It's how the administration announces the RIN credit matter that will be the bigger factor. The White House is considering capping the number of credits dealers can hold at 120 percent of their companies' annual compliance obligations. It is also considering restricting certain parties from holding RIN credits for more than 30 days. Crude oil was up sharply on the week, reaching the $76.72 level. Ethanol competes well in this price environment, so this potential announcement would have good timing.

Ethanol production for the week ending Sept. 28 averaged 1.015 million barrels per day. This is down 2.03 percent from last week and up 0.5 percent from last year. Production is at its lowest level in 23 weeks going back to mid-April. Stocks as of Sept. 28 were 23.445 million barrels. This is up 3.61 percent versus last week and up 8.82 percent from last year. Stocks remain at a record high on a same week basis.

Soybeans

Soybeans futures were stronger this week as an announcement on Oct. 1 that a new trade pact was agreed upon between Canada and the U.S. gave all row crop markets a boost. Now that another trade agreement is out of the way, the U.S. will shift its focus back to China. As always, China trade relations are still the No. 1 factor on the direction for soybean prices. It is in China's best interest to hold off until after the U.S. elections, so it will be interesting to see if planned meeting in December will come to fruition.

Crush margins are still strong and that is helping keep demand at decent levels. Reports out of Argentina are that they are offering meal cargoes at historically low meal basis while U.S. soy processors ramp up crush amid attractive crush margins. Brazil exported a record 4.6 million metric tons of soybeans in September 2018, topping last year's high by 340,000 metric tons. Year to date (January through September) shipments total 69.2 million metric tons,13 percent more than last year. AgRural estimates that Brazil's 2018-19 soybean crop is 4.6 percent planted versus 1.5 percent at the same time last year and 2.1 percent for the five-year average. Soybean planting progress in Paraná, Brazil's second-largest production area, is 29 percent planted versus 16 percent at the same time last year.

Wet weather is keeping soybean futures in a sideways pattern even as a large crop is coming when harvest picks up again. Weather forecasts are fairly consistent in forecasting very wet conditions for the next week in virtually all of the Corn Belt, with the southeast U.S. the only area escaping the wet weather.

There were no reported sales of U.S. soybeans to China the last few weeks, but other countries such as Germany and Mexico are picking up some of the slack as soybean futures are still near 10-year lows. USDA reported 55.9 million bushels of weekly soybean export sales for 2018-19 and 100,000 bushels for 2019-20. There are 742 million bushels of total commitments, down 13 percent from a year ago. Weekly export shipments of 26.5 million bushels put total shipments down 23 percent from a year ago.

Canola

For the week ending Oct. 4, November canola futures were up $1.70 Canadian to $499 Canadian per metric ton. The Canadian dollar was at .7738. This brings the U.S. price to $17.52 per hundredweight.